All Eyes On Fiats Debt – US-FOREX.US
Could Italian carmaker Fiat surprise the market with a return to profitability when it posts its second quarter results on Wednesday? It may well do, but the market will be more concerned about the firm’s progress in lightening its cumbersome debt load.
Fiat
could post a net profit of between 31 million euros to 40 million euros according to some analysts who spoke to Forbes, despite a market consensus of a net loss of around 110 million euros . However, the firm’s debt load will be the real market mover.
“For Fiat the issue is debt and is key to understanding the company’s behavior,” said Gabriele Gambarova, an analyst with Banca Akros in Milan. “If the debt reduction meets consensus expectations, then shares will fall. But if debt reduction is better than consensus, the stock may recover more than expected.”
Debt rose to 6.6 billion euros at the end of March from 5.9 billion euros at the end of 2008, but consensus estimates suggest Fiat may be able to bring that debt down by around 650 million euros to 6.0 billion euros . Gambarova believes debt could even fall by 1.1 billion euros , to 5.5 billion euros . Fiat shares have gained 2 euros in the past 10 days and were up 0.9%, to 7.80 euros in Monday morning trading.
“The rally is already happening but expect to see some positive reaction on Wednesday,” said MedioBanca analyst Massimo Vechio, who expects the company to post a 40 million euro net profit for the quarter.Opinion is divided on Fiat’s performance in the second quarter, even though the firm has benefitted from scrapping scheme incentives in place in Italy. This is partly because of differing assumptions on tax charges. Centrosim analyst Carlo Drago expects Fiat to post a net loss of 89 million euros .
Citigroup is more positive on Fiat, predicting carmaker will “lighten the gloom” in the industry, while JP Morgan told investors to expect negative surprises from Fiat: “We think investors will increasingly focus on 2010, when the post-[scrapping] hangover is likely to result in a volume decline in Western Europe.”